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Retirees have to assess capital differently

retirees income capital

The COVID-19 pandemic’s effect on investment markets will force retirees to reassess capital pools with regard to their income requirements.

SMSF members who are also retirees are facing a new dynamic as to how they generate retirement income due to the impact the coronavirus pandemic has had on their capital invested in equities and property markets, a senior industry executive has said.

“It’s not so much a question of how do you invest in retirement, but how do you see the capital that you’ve got and what’s it actually for,” Challenger retirement income chair Jeremy Cooper said during a thought leadership panel at the SMSF Association Technical Day 2020 held yesterday.

“What a lot of retirees are doing is they’re assuming that they can always just live off the income yields in retirement or the investment return that spits off this capital and not engaging in the need on some occasions to actually consume some of that capital.

“I think that’s where a lot of retirees are right now; they actually have to turn around and confront, in many cases, the several million dollars they’ve been lucky enough to save up and they’ve got to engage with spending some of it while this thing is going on.”

According to Cooper, the predicament he described has arisen due to a couple of specific areas where COVID-19 has had a significant impact on investment portfolios.

“Two things pop up for me. One is a very large number of retirees in the self-managed sector have been treating bank dividends as if they’re a sort of guaranteed source of income, that they’re not connected to relatively risky businesses. Well guess what, they are,” he said.

“And secondly, the belief that commercial property is a really safe thing. Well it sort of is and it isn’t. Commercial property has arguably very limited inherent value. It’s really the creditworthiness of the tenant that gives the thing value.

“And here we’ve seen an example where something’s happened, it wasn’t expected, and those tenants are now unable, in many, many cases, to pay that rent.”

The same panel predicted the SMSF sector would receive a boost in its numbers as a result of COVID-19.

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